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‘Economy ceased to be priority area of Xi Jinping’

The complete focus during the 20th party congress was seen shifted to politics, hyper-nationalism and military expansion

Chinese economy has ceased to become a priority area for Chinese President Xi Jinping’s administration as was reflected in the 20th Congress of the Chinese Communist Party, media reports said.

Firstly, Xi’s government delayed releasing the economic data. The complete focus during the 20th party congress was seen shifted to politics, hyper-nationalism and military expansion, reported the Financial Post.

According to Ting Lu, a China economist chief said, “The actual economic recovery momentum is not strong.” The Chinese economy is also facing the brunt of harsh COVID lockdowns and restrictions.

The scenario of the Chinese economy has become upside down after the pandemic. Before the pandemic, the Chinese economy grew by 7.7 per cent on average each year, however, there are concerns that China may not be able to reach 3 per cent annual growth now, reported Financial Post.

Furthermore, to compete with the US, China must clock at least 5 per cent growth if it wants to displace the US from the rank one. The reasons for China’s growth trajectory derailment are poor productivity, weakening human resource power, and burgeoning debt.

President Xi Jinping at the 20th National Congress of the Communist Party of China. (Photo: Xinhua/IANS)

This will lay a negative impact on China’s aspirations as an economic, diplomatic and military superpower. Alex Brazier and Serena Jiang, economists at investment firm Blackrock have highlighted that the boost in the Chinese economy received in recent years is slowly dying down.

They said, “Losing that huge growth driver will make maintaining overall economic growth quite the challenge.” The third term of Xi Jinping started off with fever-pitch nationalistic sentiments where Xi Jinping vowed to make China the most powerful country. However, the country appears to be losing steam on the economic front.

For instance, China’s exports are declining, industrial output plummeting, and strict lockdowns affecting businesses. The country’s elites are also leaving China. China’s highhandedness in dealing with the pandemic management is adding to the economic problem.

Another thing is how China’s international coercive policies, especially China’s aggressiveness on Taiwan and other neighbours. All of this has made China less popular during Xi’s regime, reported The Financial Post.

Chinese President Xi Jinping reviews the Peoples Liberation Army Navy in the South China Sea. (Credit Xinhua)

Lisheng Wang, an economist at Goldman Sachs, said “China’s fiscal conditions have faced significant challenges since spring this year, from the sharp contraction in land sales, large-scale tax rebates and deferrals, and more spending on Covid controls.”

China’s GDP growth for the third quarter was restricted to under 4 per cent, indicating an economic slowdown. Julian Evans-Pritchard, senior China economist at Capital Economics, said “There is no prospect of China lifting its zero-COVID policy in the near future, and we don’t expect any meaningful relaxation before 2024.”

Highlighting negative growth of 1.1 percentage points in exports in 2022 and 2023, experts said, “Losing that huge growth driver will make maintaining overall economic growth quite the challenge.” (ANI)

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Global economy on brink of recession, warns World Bank

The World Bank chief noted at the press conference that world population growth is estimated at 1.1 per cent per year….reports Asian Lite News

The global economy is “dangerously close” to a recession, as inflation remains elevated, interest rates rise, and growing debt burden hits the developing world, World Bank President David Malpass said.

“We’ve lowered our 2023 growth forecast from 3 per cent to 1.9 per cent for the global growth, that’s dangerously close to a world recession,” Malpass said at a press conference during the IMF and World Bank annual meetings on Thursday.

“All of the problems that people have taken note of, the inflation problem, the interest rate rises, and the cutoff of capital flow to developing world hit the poor hard,” he said, highlighting the buildup of debt for developing countries.

“That’s a world recessions could happen under certain circumstances,” Malpass said.

In a study published in mid-September, the World Bank warned that as central banks across the world simultaneously hike interest rates in response to inflation, the world may be edging toward a global recession in 2023, with a growth forecast of only 0.5 per cent, reports Xinhua news agency.

The World Bank chief noted at the press conference that world population growth is estimated at 1.1 per cent per year.

“So if you get much slower in terms of world growth, that means people are going backward,” Malpass said in response to a question from Xinhua.

Citing a recent World Bank report, Malpass said that the Covid-19 pandemic dealt the biggest setback to global poverty-reduction efforts since 1990, pushing about 70 million people into extreme poverty in 2020, and the war in Ukraine threatens to make matters worse.

According to the Poverty and Shared Prosperity Report, global median income declined by 4 per cent in 2020, the first decline since its measurements of median income began in 1990.

“So if we have a world recession now, that would also depress median income, meaning that the people in the lower half of the income scale are going down,” Malpass said.

The World Bank chief also noted that he has been concerned about the concentration of capital in the world in the top end of the advanced economies.

“So that’s, I think, one of the issues that the world has to deal with to allow capital to flow to new businesses and to developing countries, that would take a change in the direction of fiscal and monetary policies in the advanced economies,” said Malpass.

The world is facing very challenging environment from the advanced economies, and that has serious implications, dangers for the developing countries, he said.

“My deep concern is that these conditions and trends might persist into 2023 and 2024.”

ALSO READ: ‘China’s economy expands while global economic outlook looks dim’

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Pound falls sharply after BoE gives bond-buying end date

Pensions industry leaders and one of the Bank’s former deputy governors had earlier called for an extension to mop up the ongoing bond market fallout triggered by Chancellor Kwasi Kwarteng’s ill-received mini-budget last month…reports Asian Lite News

The British pound has fallen sharply against the dollar after Bank of England Governer Andrew Bailey warned that it would not extend its emergency intervention in financial markets beyond this week, after the turmoil sparked by the governments mini-budget.

The currency skidded by more than a cent against the dollar to below $1.10 after the Bank’s governor insisted the 65 billion pound scheme to purchase UK government bonds would not be continued beyond the deadline on Friday, The Guardian reported.

Pensions industry leaders and one of the Bank’s former deputy governors had earlier called for an extension to mop up the ongoing bond market fallout triggered by Chancellor Kwasi Kwarteng’s ill-received mini-budget last month

The central bank had started the day by saying it would revamp the scheme’s bond-buying firepower — within the existing timeframe — for a second time in as many days, warning there were still “material risks” in government debt markets affecting UK pension funds.

However, it ended with Bailey saying the intervention must end this week, telling an event organised by the Institute of International Finance in Washington: “We have announced that we will be out by the end of this week. We think the rebalancing must be done.

“My message to the funds involved and all the firms involved managing those funds: You’ve got three days left now. You’ve got to get this done.”

It comes after the International Monetary Fund added to pressure on Liz Truss’ government to U-turn on unfunded tax cuts announced in last month’s mini-budget, saying changes in policy would help calm jittery financial markets, The Guardian reported.

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Inflation in India to come down to 4%: IMF

According to the IMF, the global inflation rate is projected to be 8.8 per cent this year and come down to 6.5 per cent next year…reports Asian Lite News

The International Monetary Fund (IMF) expects India’s inflation rate to come down to the 4 per cent range in the next financial year with additional monetary tightening from being above the Reserve Bank’s target of 6.9 per cent.

Daniel Leigh, the IMF’s head of World Economic Studies Division, said at a news conference on Tuesday, “We do expect that inflation will come back into the inflation tolerance band 4 per cent in fiscal year 2023-2024, and additional monetary tightening is going to ensure that that happens.”

IMF’s chief economist Pierre-Olivier Gourinchas said, “Inflation is still above the central bank target in India at 6.9 per cent (that) were projected for this year and coming down to 5.1 per cent”.

“So, the overall stance of policy within that fiscal and monetary policy should probably be on a tightening side,” he added at the release of the IMF’s World Economic Outlook (WEO) report.

According to the IMF, the global inflation rate is projected to be 8.8 per cent this year and come down to 6.5 per cent next year.

Overall, Gourinchas said, “India has been doing fairly well in 2022 and is expected to continue growing fairly robustly in 2023”.

“We have a growth rate at 6.8 per cent for this year and the projection is at 6.1 per cent for next year,” he said.

Explaining the downward revision of India’s growth rate for the current fiscal year by 0.6 per cent from the 7.4 per cent projection made in July, he said, “It’s mostly due to the external outlook as well as tighter financial conditions, and the growth revision for the first quarter of the fiscal year that came in weaker than previously expected.”

Despite the downgrade, India is still the world’s fastest-growing major economy.

The IMF projected the global growth rate is projected this year to be only 3.2 per cent and 2.7 per cent next year.

“The worst is yet to come,” Gourinchas said, warning of a looming recession.

He said, “We are expecting about a third of the global economy to be in a technical recession.”

He attributed it to the three largest economies, the US, China and the Euro Area continuing to “stall”.

The WEO projected the US economy to grow by only 1.6 per cent in 2022, China by 3.2 per cent, and the Euro Zone by 3.1 per cent.

According to the IMF, the high interest rate was contributing to the slower growth in the US, the rising energy prices in Europe and the Zero Covid policy in China where lockdowns are still being imposed in some regions and the crisis in the property sector.

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IMF chief warns of darker global outlook

The IMF estimates that countries accounting for about one-third of the world economy will experience at least two consecutive quarters of contraction this or next year….reports Asian Lite News

Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva said there is a “fundamental shift” in the global economy, urging countries to bring down inflation, put in place responsible fiscal policy, and jointly support emerging market and developing economies.

The global economy is moving “from a world of relative predictability, with a rules-based framework for international economic cooperation, low interest rates, and low inflation… to a world with more fragility, greater uncertainty, higher economic volatility, geopolitical confrontations, and more frequent and devastating natural disasters”, Georgieva said in a curtain raiser speech ahead of the 2022 Annual Meetings of the IMF and the World Bank scheduled next week.

Stressing the urgency to stabilise the economy, she noted that global outlook has darkened by multiple shocks, among them a war, and inflation has become more persistent, reports Xinhua news agency.

The IMF has downgraded its growth projections already three times since October last year, to only 3.2 per cent for 2022 and 2.9 per cent for 2023, the IMF chief said, adding that the global institution will downgrade growth for next year in its updated World Economic Outlook next week.

“We will flag that the risks of recession are rising,” she noted.

The IMF estimates that countries accounting for about one-third of the world economy will experience at least two consecutive quarters of contraction this or next year.

“And, even when growth is positive, it will feel like a recession because of shrinking real incomes and rising prices,” she added.

Overall, the IMF expects a global output loss of about $4 trillion between now and 2026. This is the size of the German economy, a massive setback for the world economy.

The IMF chief urged policymakers to stay the course to bring down inflation, and to put in place responsible fiscal policy, one that protects the vulnerable, without adding fuel to inflation, while calling for joint efforts to support emerging market and developing economies.

“A stronger dollar, high borrowing costs and capital outflows cause a triple blow to many emerging markets and developing economies,” said Georgieva, noting that the probability of portfolio outflows from emerging markets over the next three quarters has risen to 40 per cent, which could pose “a major challenge” to countries with large external financing needs.

More than a quarter of emerging economies have either defaulted or had bonds trading at distressed levels; and over 60 per cent of low-income countries are in, or at high risk, of debt distress.

The IMF chief urged countries to work together to address issues such as food insecurity, which is now affecting a staggering number of 345 million people, and climate change, the existential threat to humanity.

Since the pandemic began, the IMF has provided $258 billion to 93 countries.

Since the Ukraine-Russia war, it has supported 16 countries with close to $90 billion, which is in addition to last year’s historic $650 billion Special Drawing Rights allocation.

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ECB expects economic activity to slow

The euro area economy grew by 0.8 per cent in the second quarter of 2022, Lagarde explained, mainly owing to strong consumer spending on services as the economy reopened…reports Asian Lite News

The European Central Bank (ECB) expects economic activity in Europe to slow down substantially in the coming months, due to skyrocketing prices, decreased spending power and overall uncertainty, ECB President Christine Lagarde said.

Addressing a hearing of the European Parliament’s Economic and Monetary Affairs Committee, Lagarde on Monday added: “We expect to raise interest rates further over the next several meetings, to dampen demand and guard against the risk of a persistent upward shift in inflation expectations.”

“Our future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach,” she said.

The euro area economy grew by 0.8 per cent in the second quarter of 2022, Lagarde explained, mainly owing to strong consumer spending on services as the economy reopened.

However, growth is expected to slow substantially. This is mainly due to high inflation, slower demand for services, a weakening global demand and worsening terms of trade. Falling household and business confidence due to a high level of uncertainty are also contributing factors.

The Russia-Ukraine conflict has “cast a shadow over Europe” with economic consequences, she said.

The “outlook is darkening,” while inflation remains “far too high” and is “likely to stay above our target for an extended period”.

“The risks to the inflation outlook are primarily on the upside, mainly reflecting the possibility of further major disruptions in energy supplies,” the ECB chief added.

“While these risk factors are the same for growth, their effect would be the opposite: they would increase inflation but reduce growth.”

These developments have led to a downward revision of the latest ECB staff projections for economic growth for the remainder of the current year, and throughout 2023. Staff now expect the economy to grow by 3.1 per cent in 2022, by 0.9 per cent in 2023 and 1.9 per cent in 2024.

Lagarde said it is “essential” that “temporary and targeted” fiscal support is used to shield households from the impact of higher prices, as this limits the risk of fueling inflationary pressures.

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Sterling crumbles to record low

Sterling also tumbled 1.3% against the euro, having hit its lowest since September 2020 at 92.60 pence…reports Asian Lite News

Sterling crashed to a record low on Monday as traders scampered for the exits on mounting concern that the new government’s economic plan will stretch Britain’s finances to the limit.

The British pound’s searing drop helped the safe-haven U.S. dollar to a new two-decade peak against a basket of major peers, while the euro hit a fresh two-decade low against the greenback.

In Japan, authorities reiterated that they stood ready to respond to speculative currency moves, after they intervened last week to bolster the yen for the first time since 1998.

But it was sterling’s precipitous fall that grabbed traders’ attention. It slumped as much as 4.9% to an all-time nadir of $1.0327 , before stabilising around $1.0699 in early London trade — still down 1.5% on the day.

That followed a 3.6% drop on Friday, when new finance minister Kwasi Kwarteng unveiled historic tax cuts funded by the biggest increase in borrowing since 1972. Kwarteng on Sunday dismissed the freefall in the pound, saying his strategy was to focus more on longer-term growth and not short-term market reaction.

Sterling also tumbled 1.3% against the euro, having hit its lowest since September 2020 at 92.60 pence .

Kit Juckes, head of currency strategy Societe Generale in London, said markets had a tendency to overshoot but noted two points on sterling’s slide.

“One is the loss of confidence in UK fiscal policy and that won’t help sterling,” he said. “The second is that the mini budget has allowed sterling to be the short of choice against the dollar.”

The euro also touched a fresh 20-year trough at $0.9528 , as the pound’s slide rippled across markets.

Sunday’s election in Italy, in which a rightist bloc looked set for a solid majority, was also in focus.

The dollar built on its recovery against the yen following last week’s currency intervention by Japanese authorities.

It firmed 0.3% to 143.76 yen , heading back toward Thursday’s 24-year peak of 145.90. It tumbled to around 140.31 that same day after Japan conducted yen-buying intervention for the first time since 1998.

The dollar index – whose basket includes sterling, the euro and the yen – reached 114.58 for the first time since May 2002 before easing to 113.16, just a touch firmer on the day.

“The dollar strength was in large part because of the heavy selling of the sterling,” said Saktiandi Supaat, regional head of FX research and strategy at Maybank.

“It’s more of a risk-off sort of thing,” Supaat added. “Global recession fears have actually intensified and widened quite broadly.”

The risk-sensitive Australian dollar briefly slumped to $0.64845, its lowest since May 2020, and the Canadian dollar reached a fresh trough at C$1.3638 per greenback, its weakest since July 2020.

China’s offshore yuan slid to a new low of 7.1728 per dollar, its weakest since May 2020. Onshore, the yuan also touched a 28-month trough of 7.1690.

The fresh lows came even as the central bank said it will reinstate foreign exchange risk reserves for some forwards contracts, a move that would make betting against the yuan more expensive and slow the pace of its recent depreciation.

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UK inflation rate unexpectedly dips to 9.9% as fuel prices decline

Sterling was roughly flat against the dollar on Wednesday morning, trading at around $1.1490…reports Asian Lite News

UK inflation slowed in August on the back of a fall in fuel prices, though food prices continued to rise as the country’s cost-of-living crisis persists.

The consumer price index rose 9.9% annually, according to estimates published Wednesday by the Office for National Statistics, fractionally below a consensus forecast of 10.2% among economists polled by Reuters. It was also down from July’s figure of 10.1%.

Month-on-month, consumer prices rose 0.5%, fractionally below forecasts. Core inflation, which excludes volatile energy, food, alcohol and tobacco, was up 0.8% month-on-month and 6.3% year-on-year, in line with expectations.

“A fall in the price of motor fuels made the largest downward contribution to the change in both the CPIH and CPI annual inflation rates between July and August 2022,” the ONS said in its report.

“Rising food prices made the largest, partially offsetting, upward contribution to the change in the rates.”

Sterling was roughly flat against the dollar on Wednesday morning, trading at around $1.1490.

The UK has been hit by a historic cost-of-living crisis this year as food and energy prices skyrocket and pay increases fail to keep pace with inflation, which has led to one of the sharpest falls in real wages on record.

Last week, new British Prime Minister Liz Truss announced an emergency fiscal package capping annual household energy bills at £2,500 ($2,881.90) for the next two years, with an equivalent guarantee for businesses over the next six months and further support in the pipeline for vulnerable sectors.

Analysts expect the measures — estimated to cost the public purse around £130 billion — to sharply reduce the inflation outlook in the short term, but increase it over the medium term.

The Bank of England is set to announce its latest monetary policy decision next Thursday after a delay due to the death of Queen Elizabeth II, and is widely expected to opt for a sharp 75 basis point increase to interest rates as it looks to drag down inflation.

At its last meeting, the Bank projected that inflation would peak at 13.3% before the end of the year, and policymakers will be reappraising their outlook in light of Truss’s new energy cap announcement.

“With hope, the cap on energy bills may mean inflation is now close to peaking, though last month’s fall could likely be a fluke and we may see inflation climb further still in the months to come,” said Richard Carter, head of fixed interest research at Quilter Cheviot.

“While the energy plan may help, it comes at the cost of higher levels of borrowing and government spending which could encourage the Bank of England to hike rates even further than originally expected.”

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Queen’s funeral set to knock economy after rebound

Britain usually has only one public holiday in early summer but the amount was doubled for the Jubilee…reports Asian Lite News

The recession-threatened economy rebounded in July, data showed Monday, but is set to receive a further hit from a public holiday marking next week’s funeral of Queen Elizabeth II.

British gross domestic product expanded 0.2 percent after a drop of 0.6 percent in June, the Office for National Statistics said in a statement.

June’s big decline had been attributed partly to an extra public holiday for the queen’s Platinum Jubilee marking 70 years on the throne before her passing last week.

Another public holiday is scheduled next Monday for the queen’s state funeral.

“The feeble 0.2-percent bounce back in July was driven by weak GDP in June due in part to the loss of working days from the Jubilee long weekend,” noted Yael Selfin, chief economist at KPMG UK.

“More concerning, July’s GDP remains below the level seen in May, pointing to an overall contraction over the first two months of summer.”

Britain usually has only one public holiday in early summer but the amount was doubled for the Jubilee.

Time off work for millions of Britons next Monday means the economy will have had two more public holidays than usual in 2022.

The Bank of England (BoE) expects the UK economy to enter recession before the end of the year on decades-high inflation fuelled by surging energy and food bills.

“Looking ahead, the extra public holiday for the queen’s funeral on September 19 has the potential to be more damaging for the economy than the extra day off for the Jubilee in June,” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said following Monday’s data.

“That said, many businesses will be able to catch up work, as most of them did in June.”

Pantheon is predicting the funeral to hit September GDP by 0.2 percent.

“That suggests that a technical recession — widely defined as two quarters of declining GDP — is hanging in the balance.”

The BoE forecasts UK inflation — already at a 40-year high above 10 percent — to keep surging this year.

In a bid to tame runaway prices, the central bank has hiked its main interest rate several times since the end of last year.

More tightening of borrowing costs had been nailed on at a BoE meeting this week but its latest monetary policy gathering has been delayed until after the funeral.

Mourners later Monday get the first opportunity to pay respects before the coffin of Queen Elizabeth II, as it lies in an Edinburgh cathedral where successor King Charles III will mount a vigil.

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India likely to become third largest economy by 2029

India had surpassed UK as the 5th largest economy as early as December 2021 itself and not recently as is being claimed, reports Asian Lite News

India is expected to become world’s third largest economy by 2029 due to the path taken by the country since 2014, SBI Ecowrap report said. The share of India’s GDP is now at 3.5 per cent, as against 2.6 per cent in 2014 and is likely to cross 4 per cent in 2027, the current share of Germany in global GDP.

India has undergone a large structural shift since 2014 and is now the 5th largest economy.

Interestingly, India had surpassed UK as the 5th largest economy as early as December 2021 itself and not recently as is being claimed.

“The path taken by India since 2014 reveals India is likely to get the tag of 3rd largest economy in 2029, a movement of 7 places upwards since 2014 when India was ranked 10th. India should surpass Germany in 2027 and most likely Japan by 2029 at the current rate of growth,” the report said.

“In coming days India is likely to be the beneficiary as China slows down in terms of new investment intentions,” the report added.

India’s GDP growth in Q1FY23 was 13.5 per cent. At this rate, India is likely to be the fastest growing economy in the current fiscal. Interestingly, even as estimates of India’s GDP growth rate for FY23 currently range from 6.7 per cent to 7.7 per cent, we firmly believe that it is immaterial.

“In a world that is ravaged by uncertainties, we believe 6 to 6.5 per cent growth is the new normal. Nevertheless, we make a passionate urge to update the IIP basket that is composed of a 2012 set of products and is hopelessly outdated.”

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